“Experience is the best teacher, but the tuition is very expensive.”
Failure (individual or corporate), while usually inconvenient and often expensive, is not always without rewards.
There can be many causes of failure. Typically a failure will offer a company a valuable learning experience, which if properly assessed and acted on, has the potential to contribute long-term value to organizational performance.
These circumstances are especially true in business lending, with its multi-party participation to originate, underwrite, process, close and service loan products.
But according to Amy C. Edmondson, a management professor at Harvard Business School, most organizations miss the realization of learning opportunities by improperly using failure only as a “blame game.”
Organizations have a misconception about failure, according to Edmondson’s article “Strategies for Learning from Failure,” published in April 2011 in the Harvard Business Review. That misconception is rooted in the perception that failure and the high standards of organizational performance cannot co-exist. She argues that this is not the case.
“Not all failures are created equal,” she wrote, “and perfection at all times is an unrealistic and potentially unnerving cloud of expectation for an organization’s culture to function under. Doing so could come at the expense of potential business lessons that certain failures can teach.”
Instead, Edmondson recommends that leaders should interpret failures on a spectrum and assess which are more ‘blameworthy’ and which are healthy for turning into a business education opportunity. Her suggested reasons for failure, from most to least blameworthy, include:
• Deviance: individual chooses to violate a prescribed process.
• Inattention: individual deviates from specifications.
• Lack of ability: individual doesn’t have skills, conditions or training to execute job.
• Process inadequacy: individual adheres to a prescribed but faulty process.
• Task challenge: individual faces a task too difficult to be executed reliably every time.
• Process complexity: process composed of many elements breaks down when encountering novel interactions.
• Uncertainty: lack of clarity about future events causes people to take seemingly reasonable actions, producing undesirable results.
• Hypothesis testing: experiment conducted to prove that idea will succeed fails instead.
• Exploratory testing: experiment conducted to expand knowledge leads to an undesirable result.